Question

The Case of the Unidentified Industries
If you were asked to visualize (in income statement and balance sheet form) the financial structure of a typical firm in one particular industry, do you think you could do it? How close to your “vision” do you think the reality would be? What if you were asked to do the same experiment covering 14 firms drawn from 14 different industries? How many of the 14 do you think you would get right?
You may be surprised by how much you already know!
Exhibit 1 presents the balance sheets (in percentage form) and other selected financial data for 14 firms drawn from 14 different industries. While there are clear differences in the financial structures of different firms within a single industry, the firms selected have figures that are broadly typical of those in the industry.
Try to match the 14 firms operating in the 14 industries named below with the 14 sets of financial data presented in Exhibit 1. Use any approach you find helpful.
Airline
Bookstore chain
Commercial Bank (fitted into the most nearly comparable balance sheet and ratio categories of the nonfinancial companies)
Computer software developer
Department store chain (with its “own brand” charge card)
Electric and gas utility (with 80% of its revenue from electricity sales and 20% of its revenue from natural gas sales)
Online direct factory to customer personal computer vendor (with more than half of sales to business customers and most manufacturing outsourced)
Online retailer
Parcel delivery service
Pharmaceutical manufacturer
Restaurant chain
Retail drug chain
Retail grocery chain
Social networking service

Why does each of the industries have the patterns of assets use revealed in Exhibit 1? The sources of financing? The profitability? The inventory turnover? The accounts receivable collection period?

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The Case of the Unidentified Industries
1. Airline
Looking at the 14 sets of financial results, it is those in column “M” that best represent an airline company. One of the key indicators that firm M is in the airline business is the absence of inventories which is a clear indicator that this is a service firm. Another indicator that firm M is an airline company is the high amount of plant and equipment. Airplanes are expensive to buy, thus it is expected that most of the assets for an airline company will be tied up in equipment. Additionally, collection period for this firm is only 7 days which is an indication that this is a firm that primarily collects cash in advance....

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